Conclusion.


I know it will be said that in this work I have pointed out a deep
malady, and only suggested a superficial remedy. I have tediously
insisted that the natural system of banking is that of many banks
keeping their own cash reserve, with the penalty of failure before
them if they neglect it. I have shown that our system is that of a
single bank keeping the whole reserve under no effectual penalty of
failure. And yet I propose to retain that system, and only attempt
to mend and palliate it.

I can only reply that I propose to retain this system because I am
quite sure that it is of no manner of use proposing to alter it. A
system of credit which has slowly grown up as years went on, which
has suited itself to the course of business, which has forced itself
on the habits of men, will not be altered because theorists
disapprove of it, or because books are written against it. You might
as well, or better, try to alter the English monarchy and substitute
a republic, as to alter the present constitution of the English
money market, founded on the Bank of England, and substitute for it
a system in which each bank shall keep its own reserve. There is no
force to be found adequate to so vast a reconstruction, and so vast
a destructions and therefore it is useless proposing them.

No one who has not long considered the subject can have a notion how
much this dependence on the Bank of England is fixed in our national
habits. I have given so many illustrations in this book that I fear
I must have exhausted my reader's patience, but I will risk giving
another. I suppose almost everyone thinks that our system of
savings' banks is sound and good. Almost everyone would be surprised
to hear that there is any possible objection to it. Yet see what it
amounts to. By the last return the savings' banks--the old and the
Post Office together--contain about 60,000,000 L. of deposits, and
against this they hold in the funds securities of the best kind. But
they hold no cash whatever. They have of course the petty cash about
the various branches necessary for daily work. But of cash in
ultimate reserve cash in reserve against a panicthe savings' banks
have not a sixpence. These banks depend on being able in a panic to
realise their securities. But it has been shown over and over again,
that in a panic such securities can only be realised by the help of
the Bank of Englandthat it is only the Bank with the ultimate cash
reserve which has at such moments any new money, or any power to
lend and act. If in a general panic there were a run on the savings'
banks, those banks could not sell 100,000 L. of Consols without the
help of the Bank of England; not holding themselves a cash reserve
for times of panic, they are entirely dependent on the one Bank
which does hold that reserve.

This is only a single additional instance beyond the innumerable
ones given, which shows how deeply our system of banking is fixed in
our ways of thinking. The Government keeps the money of the poor
upon it, and the nation fully approves of their doing so. No one
hears a syllable of objection. And every practical manevery man who
knows the scene of actionwill agree that our system of banking,
based on a single reserve in the Bank of England, cannot be altered,
or a system of many banks, each keeping its own reserve, be
substituted for it. Nothing but a revolution would effect it, and
there is nothing to cause a revolution.

This being so, there is nothing for it but to make the best of our
banking system, and to work it in the best way that it is capable
of. We can only use palliatives, and the point is to get the best
palliative we can. I have endeavoured to show why it seems to me
that the palliatives which I have suggested are the best that are at
our disposal.

I have explained why the French plan will not suit our English
world. The direct appointment of the Governor and Deputy-Governor of
the Bank of England by the executive Government would not lessen our
evils or help our difficulties. I fear it would rather make both
worse. But possibly it may be suggested that I ought to explain why
the American system, or some modification, would not or might not be
suitable to us. The American law says that each national bank shall
have a fixed proportion of cash to its liabilities (there are two
classes of banks, and two different proportions; but that is not to
the present purpose), and it ascertains by inspectors, who inspect
at their own times, whether the required amount of cash is in the
bank or not. It may be asked, could nothing like this be attempted
in England? could not it, or some modification, help us out of our
difficulties? As far as the American banking system is one of many
reserves, I have said why I think it is of no use considering
whether we should adopt it or not. We cannot adopt it if we would.
The one-reserve system is fixed upon us. The only practical
imitation of the American system would be to enact that the Banking
department of the Bank of England should always keep a fixed
proportionsay one-third of its liabilitiesin reserve. But, as we
have seen before, a fixed proportion of the liabilities, even when
that proportion is voluntarily chosen by the directors, and not
imposed by law, is not the proper standard for a bank reserve.
Liabilities may be imminent or distant, and a fixed rule which
imposes the same reserve for both will sometimes err by excess, and
sometimes by defect. It will waste profits by over-provision against
ordinary danger, and yet it may not always save the bank; for this
provision is often likely enough to be insufficient against rare and
unusual dangers. But bad as is this system when voluntarily chosen,
it becomes far worse when legally and compulsorily imposed. In a
sensitive state of the English money market the near approach to the
legal limit of reserve would be a sure incentive to panic; if
one-third were fixed by law, the moment the banks were close to
one-third, alarm would begin, and would run like magic. And the fear
would be worse because it would not be unfoundedat least, not
wholly. If you say that the Bank shall always hold one-third of its
liabilities as a reserve, you say in fact that this one-third shall
always be useless, for out of it the Bank cannot make advances,
cannot give extra help, cannot do what we have seen the holders of
the ultimate reserve ought to do and must do. There is no help for
us in the American system; its very essence and principle are
faulty.

We must therefore, I think, have recourse to feeble and humble
palliatives such as I have suggested. With good sense, good
judgment, and good care, I have no doubt that they may be enough.
But I have written in vain if I require to say now that the problem
is delicate, that the solution is varying and difficult, and that
the result is inestimable to us all.